In my next few articles, I will focus on a method of trading that unfortunately, very few traders understand and use to their advantage. What I’m talking about is “Fundamental Analysis.”

Certainly, the vast majority of retail traders rely solely on “Technical Analysis” in making their decisions and believe it is superior in every way to Fundamental Analysis.

However, by the end of this series of articles, I hope to have opened your eyes to the power of using Fundamental Analysis to achieve your goal of becoming a consistently profitable trader.

So, let’s begin with a few basics.

When used in the equities market, Fundamental Analysis is used to measure the value of a company in order to determine whether its stock should be bought or sold.

Similarly, in Forex, traders will use Fundamental Analysis to evaluate the value of currencies and their countries.

Primarily, a Forex fundamental trader will use various economic announcements, news reports, economic data, and political events to determine the overall value of investing in a currency.

Of course, the value of a currency changes over time due to a variety of factors, including the growth and financial strength of its economy.

Now, before I get into explaining how I use Fundamental Analysis in my own trading, I want to discuss three myths that cause people to shy away from using this powerful method.

Myth #1 – Technical Analysis Is The Easiest and Quickest Way To Trading Profits

Over the many years I’ve been involved with Forex trading, as a professional funds manager and a private trader, I have seen that almost all retail traders are overly-focused on using Technical Analysis. In fact, many of them believe that using Technical Analysis is the “smartest” way to trade.

But, this is just a myth. At its core, traders who only focus on using Technical Analysis believe that it can “predict” the next move. But that’s like believing that driving while looking in the rear-view mirror is a powerful way of driving. That just doesn’t make sense.

When we drive, we do much better when we focus on what is in front of us. We look at the road and note the signs. It’s the same way with Fundamental Analysis. We look forward, we pay attention to the signs, and ultimately, we know where we’re going.

#2 Myth – Fundamental Trading Is Hard

When I talk to traders about the power of using Fundamental Analysis in their trading, they often express their concern that fundamental trading is hard. They think it’s complicated, and because they don’t have an extensive education in economics, Fundamental Analysis just isn’t practical for them to try. After all, how could they know how to review all the details of the economic projections for each country?

But again, thinking that Fundamental Trading is hard is just a myth, because you don’t have to do all of that. In fact, shortly, I will show you just how simple Fundamental Analysis can be. I’ll even show you how it can be easier than Technical Analysis. So please, don’t worry about it being too complicated.

Another myth I often hear is by the time an economic report is released, it’s already priced into the market. Similarly, traders who trade these news releases often believe that the initial quick move is all there is and after that, there’s no more opportunity to profit.

But that’s not the case at all. Sure, there are speculative traders who try to make a quick profit on the initial short-term move.

However, in the long-term, there are institutional investors and other long-term traders who will gradually move their money from lower-yield to higher-yield countries.

And of course, this puts further upward pressure on the value of the currency. This process takes weeks, months, even years, depending on the number and frequency of interest rate hikes.

So, the bottom line is, it’s impossible for all the impact of a financial news report to be instantly priced into a market.

In the next article of this series, I will show you how I use Fundamental Analysis in my own trading. I want to show you how simple the process is, and how little you really need to track to make extremely profitable trades.

It’s really just a matter of learning to understand the role of a central bank and what they watch to achieve their goal of keeping the economy stable.

It basically comes down to a short list of economic indicators coupled with a few simple tools.

30 Comments

hello Dustin its great i feel lucky thismorning that i botehred to open your email asi am abrand new newbie learning fast an di have always believed that fundamental analysis is teh most logical! i aprecaite how good your logic and professioanl training is an di will be looking out for your commenst daily mnay thanks MY current email will expire so please now onwards use [removed for privacy] my old one is [removed for privacy] thanks again! regds Frank

Yes have been studying technical analysis both for Forex and equity trading. Fundamental analysis sounded too complex even though I have an economics degree. So look forward to your next article. I haven’t started trading yet because I don’t feel I know enough to try it out yet. Cheers
Paul

Whilst trading fundamental announcements regularly (I only trade a few high impact ones per month) this form of trading can be frustrating as sometimes the market does not move in the direction it should with the announcement – therefore causing traders confusion frustration and ultimately the belief that this type of trading does not work.
The fact is you can interpret the market with these announcements but you cannot always see the underlying overall direction the countries currency in question will go – I am not inciting conspiracy theories here but it is well documented that several countries manipulate the movement of their currency.
Many times you later find out that a total out of the blue different movement that you had expected resulted in an off the cuff comment by some countries politician
This is where I feel can be frustrating but there again you have that in technical analysis as well – many a time I have seen currencies blast through a strong resistance level so it happens in both types of trading.
Also I am a believer that the fundamental announcements will fulfill technical set ups quicker so working hand in hand with both technical and fundamental trading can be very profitable.
All in all it adds to the mystique that trading these markets offer us that keeps us coming back to fuel our competitive juices to beat the markets.

Every guru tells you to stay out of the market around fundamental events. I would love to see your info regarding this matter. I am interested in the way things play out an hour and onwards after the major fundamental event. Thanks for the info given.

Looking forward to the next article. I know fundamental is judging the financial strength of a company or country. I could never understand how to read the data clearly and come to a clear decision to make the trade or not..

i tried to trade the fundamentals but the broker wasn’t able to keep up with the quick movements in the stock market. Out of 5 trades in one week, all of which should have made a profit, only one came in because it was moving slowly.

I searched a few forums and found that this is usually the case. And just when i thought i’d cracked it!..lol

After stressful days and nights in many moons with a technical trading and money lost and found so many times, I now like a fundamental trading. It has so many of the relax atmosphere days. A wonderful great thing for many of us.

After many attempts to use EAs uncessfully (already 18 month), you opened my eyes with Fundamentals. I will focus on it now on as the Institutions I guess, although you don’t talk too-much about them even if they really are the force pushing the market up and down.

U.S. Government Required Disclaimer - Trading foreign exchange on margin carries
a high level of risk, and may not be suitable for all investors. The high degree
of leverage can work against you as well as for you. Before deciding to invest in
foreign exchange you should carefully consider your investment objectives, level
of experience, and risk appetite. The possibility exists that you could sustain
a loss of some or all of your initial investment and therefore you should not invest
money that you cannot afford to lose. You should be aware of all the risks associated
with foreign exchange trading, and seek advice from an independent financial advisor
if you have any doubts.

*CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS.
UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING.
ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER
COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY.
SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE
DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY
ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

** TESTIMONIAL DISCLAIMER

IN ACCORDANCE WITH THE FTC GUIDE LINES CONCERNING USE OF ENDORSEMENTS AND TESTIMONIALS
IN ADVERTISING, LET US MAKE YOU AWARE OF THE FOLLOWING CIRCUMSTANCES: • TESTIMONIALS
APPEARING ON THIS SITE ARE ACTUALLY RECEIVED VIA TEXT, AUDIO OR VIDEO SUBMISSION.
THEY ARE INDIVIDUAL EXPERIENCES, REFLECTING REAL LIFE EXPERIENCES OF THOSE WHO HAVE
USED OUR PRODUCTS AND/OR SERVICES IN SOME WAY OR OTHER. HOWEVER, THEY ARE INDIVIDUAL
RESULTS AND RESULTS DO VARY. WE DO NOT CLAIM THAT THEY ARE TYPICAL RESULTS THAT
CONSUMERS WILL GENERALLY ACHIEVE. THE TESTIMONIALS ARE NOT NECESSARILY REPRESENTATIVE
OF ALL OF THOSE WHO WILL USE OUR PRODUCTS AND/OR SERVICES. • THE TESTIMONIALS DISPLAYED
(TEXT, AUDIO AND/OR VIDEO) ARE GIVEN VERBATIM EXCEPT FOR CORRECTION OF GRAMMATICAL
OR TYPING ERRORS. SOME HAVE BEEN SHORTENED MEANING; NOT THE WHOLE MESSAGE RECEIVED
BY THE TESTIMONY WRITER IS DISPLAYED, WHEN IT SEEMED LENGTHY OR NOT THE WHOLE TESTIMONIAL
SEEMED RELEVANT FOR THE GENERAL PUBLIC. • GPSI, LLC IS NOT RESPONSIBLE FOR ANY OF
THE OPINIONS OR COMMENTS POSTED TO OUR SITE. GPSI, LLC IS NOT A FORUM FOR TESTIMONIALS,
HOWEVER PROVIDES TESTIMONIALS AS A MEANS FOR CUSTOMERS TO SHARE THEIR EXPERIENCES
WITH ONE ANOTHER. TO PREVENT AGAINST ABUSE, ALL TESTIMONIALS APPEAR AFTER THEY HAVE
BEEN REVIEWED BY MANAGEMENT OF GPSI, LLC. GPSI, LLC DOES NOT SHARE THE OPINIONS,
VIEWS OR COMMENTARY OF ANY TESTIMONIALS ON THIS SITE, AND ARE STRICTLY THE VIEWS
OF THE REVIEWER.

Past Performance:

Past performance is not indicative of future results. This website does not make
any representation whatsoever that the above mentioned trading systems might be
or are suitable or that they would be profitable for you. Please realize the risk
involved with trading Forex investments and consult an investment professional before
proceeding. The trading systems herein described have been developed for sophisticated
traders who fully understand the nature and the scope of the risks that are associated
with trading. Should you decide to trade any or all of these systems' signals, it
is your decision. There are both live and demo performance results provided through
this website. Demo performance results displayed on this website are hypothetical
in that they represent trades made in a demonstration ("demo") account. The trades
placed in the demo account take into consideration the spread between the bid and
ask prices which would have been paid by a trader if an actual trade was made. Transaction
prices were determined by assuming that buyers received the ask price and sellers
the bid price of quotes provided by a large Forex broker. The live accounts displayed
are actual accounts being traded with real money however the performance displayed
on these accounts is not indicative of future results and there is no guarantee
that you would have experienced the same results had you been trading the strategy
in the past